TORONTO (Reuters) - Freeport-McMoRan Inc may issue up to $1 billion in common shares, the diversified miner said on Monday in a regulatory filing, a decision that highlights how sliding commodity prices are deepening woes of mining and energy companies.
Analysts and investors cheered the move, and shares in Freeport rose more than 6 percent in midday trading on the New York Stock Exchange. A minor rebound in oil and copper prices also boosted shares.
“While macro headwinds in the sector are strong, Freeport is finally responding appropriately,” said Jefferies equity analyst Christopher LaFemina, in a note to clients. “The company has not said that this share sale would be imminent, but we expect it to happen soon.”
Freeport is battling to come to grips with a hefty debt load following its $9 billion acquisition of Plains Exploration in 2013. Its debt load stood at $20.9 billion as of June 30, and the company’s consolidated cash position was $466 million at the time.
Last week, Freeport announced that it would cut its budget for oil and gas operations and defer investments in a number of long-term projects. It also said it is reviewing its copper and molybdenum operations, due to weak commodity prices.
The price of copper has fallen about 16 percent this year and the metal is trading near six-year lows, largely due to weak demand from China, the world’s largest consumer of the metal.
Oil prices that staged a bit of a comeback in the first half of 2015 have pared gains over the last month. U.S. crude or West Texas Intermediate (WTI) was under $45 a barrel on Monday, less than half the $96 a barrel price at this time last year.
BMO analyst David Gagliano noted that Freeport’s move will likely be part of a multi-step process aimed at “preserving cash and shoring up the balance sheet.” Gagliano cut his price target on the company to $13 from $16, after Freeport’s announcement on Monday.
Freeport said proceeds from an offering would likely be used to repay debt, among other things.
Some of Freeport’s rivals have already issued equity in a bid to shore up their own balance sheets. Canadian-based copper miner First Quantum Minerals Ltd issued C$1.44 billion ($1.1 billion) in new equity in May.
($1 = 1.3012 Canadian dollars)
Reporting by Euan Rocha; Editing by David Gregorio